The Senate Finance Committee this week held a hearing entitled Tobacco:  Taxes Owed, Avoided, and Evaded.  The purpose of the meeting was to address alleged tax evasion in three principal areas:  (1) evading higher cigar taxes by increasing the weight of products to qualify for the lower rate imposed on large cigars; (2) evading higher roll-your-own tobacco taxes by marketing cigarette tobacco as pipe tobacco, and (3) trafficking in contraband tobacco products, such as counterfeit or illegally manufactured products.  The head of the Alcohol and Tobacco Tax and Trade Bureau, John Manfreda, as well as industry representatives and tobacco control advocates, testified.

We previously reported on TTB’s efforts to refine distinctions between pipe and RYO tobacco.  When pressed by Committee members on when TTB will issue a proposed rule refining the distinctions, Mr. Manfreda responded that it would be no later than January 2015.  So expect to see a proposed rule soon that would more carefully distinguish between pipe and RYO tobacco beyond just the packaging and labeling, which is the prevailing standard.

Mr. Manfreda also addressed why pipe tobacco sales have remained relatively high versus RYO tobacco sales, even after the MAP-21 legislation that regulated the commercial use of cigarette rolling machines.  He noted that the legislation had no real impact, as the tax “incentive remains” for individuals to produce their own cigarettes with the lower-taxed pipe tobacco.

For questions and/or comments, please contact Bryan Haynes, Troutman Sanders tobacco practice partner, at 804.697.1420 or by email.